Morning Insight

Morning Insight
29 April 2015
For private circulation only
Global Economies and Equities
 Most Asian stock indices fell this morning ahead of the US central bank’s comment on
monetary policy today. A survey has indicated that the US GDP may grow at just 1% in
January-March 2015 quarter. Though the US markets closed firm last night these factors,
coupled with some profit booking, led to fall in most Asian markets this morning;
 Britain’s economy grew far slower than expected in the first quarter of 2015,
delivering a blow to the government just 9 days before the general election. GDP grew by
0.3% in the January-March period compared with 0.6% growth during the last three
months of 2014. It was the slowest growth since the fourth quarter of 2012;
 Brent crude prices slipped to ~$64.64 a barrel on Tuesday ahead of weekly U.S. crude
inventory data that is expected to hit another high, but a weaker dollar helped to put a
floor under prices. Brent crude had hit a 4-1/2 month high of $65.80 a barrel last week;
Indian Economy and the Equity Markets
 The domestic market surged in late trade to snap three-day losing streak recovering from
their lowest close in 3-1/2 months in the previous session, amid short covering and
renewed buying interest. The BSE Sensex gained 219 points to close at 27,396 while the
NSE Nifty ended at 8,286, gaining 72 points. The broader markets out-performed the
front-liners, with the Midcap and Smallcap indices gaining more than 1% each. The FIIs
continues to remain net sellers of equities – they sold stocks worth Rs.1,532.84
crore while the DIIs were net buyers of stock worth Rs.1537.08 crore:
 The Australian Weather Bureau says that there is triple the normal chance of the El
Nino – an extreme weather phenomenon associated with lack of rain – happening this
year. This is quite adverse news for the Indian economy and the stocks markets;
 The rupee rose the most in almost four months against the dollar on Tuesday ahead
of the US Federal Reserve’s two-day policy meeting. The rupee ended the day up 35 paise,
the biggest gain since January 9, to close at 63.14;
 The World Bank on Tuesday said that India's economy seems to have turned the
corner and outlook has improved significantly, but even then it projected the
economy to expand by 7.5% during the current financial year, quite lower than the
Budget assumption of 8.5%. However, the Bank pegged the economic growth rate to be
7.9% in FY2017 and 8% in FY2018, which is not up to the expectations of the
government, but quite higher than International Monetary Fund's projections;
Sector Developments
 The Commerce Ministry on Tuesday liberalised the sales of preferential quota sugar to the
European Union (CXL quota) and the United States (TRQ quota), effectively allowing all
exporters and not just State Trading Enterprises (STEs) to avail of the benefits of the
quota subject to a quantitative ceiling. The quotas essentially allow a quantum of exports
to these markets at low tariffs. Further, as per the media sources, the PM has convened a
meeting to discuss some sops for the sugar industry as the cane arrears from the
sugar mills to the farmers have hit a record level of Rs.21,000 crore. Issues under
consideration are: raising the import duty on sugar to 40%, creating a buffer stock of
sugar, loan restructuring, export subsidy on white sugar (at present it is given to raw
sugar) and strictly implementing mixing of ethanol with petrol. We continue to believe
that the sugar bull run is likely to commence by the summer of 2016;
 Media sources say that the government asks the PSU banks to delay loan recovery
by 1 year for the farmers. The outstanding Gross NPA (Non-performing assets) of
advances lent to the farmers already stand at 6.05% as of December 31, 2014 for the PSU
banks. The NPA is expected to go up significantly for the PSU banks due to this
measure, which is being implemented at the time of poor monsoon expectations;
Founder &
Managing Director
[email protected]
Equinomics Research & Advisory Private Limited - Investment Adviser
29 April 2015
Morning Insight
We initiate our “BUY” recommendation on JAY BHARAT MARUTI LTD. (JBML)
Jay Bharat Maruti Ltd. (JBML) is an Indian auto components Manufacturing Company. Founded in 1986 in
collaboration with Maruti Suzuki India Limited (MSIL), the partnership represents one of the largest joint
venture of MSIL for the manufacture of sheet metal components, welded assemblies, exhaust systems, fuel fillers,
chassis and suspension components. MSIL is the largest shareholder (with ~29.3%) of JBML.
Garners ~90% of revenue from Maruti Suzuki
JBML manufactures sheet metal components, axles, Body in white, exhaust systems and chassis & suspension parts
among others. The company derives ~90% of revenue from Maruti Suzuki. It supplies for all the models to
Maruti & total requirement of the parts that are manufactured by JBML for Maruti are met by JBML only.
The company will also be supplying for Maruti's new LCV, Carry. Going forward, with Maruti’s focus of
penetrating into segments like mid-sized Sedans, UVs & LCVs, the volume of materials being supplied by
JBML will increase, thereby aiding higher volume growth for JBML;
Steadily Growing Company
JBML has reported a net profit of Rs.10.02 crore in Q4 March 2015 compared with net loss of Rs.3.70 crore in Q4
March 2014, whereas the net sales grew by 1.4% to Rs.315.10 crore compared to Rs.310 crore in the same period.
The company also improved its operating margins for the fiscal year FY2015 to 9.30%% compared to 8.29% in the
previous fiscal. Its Debt/Equity ratio also came down from 0.77 to 0.49 when compared for the same period. JBML
has reported a steady growth over the last 5 years despite the passenger vehicles taking a significant hit in
their growth in the last 2 years. While its sales increased at a CAGR of 7.1% over FY2011-FY2015, its net
profit grew at an annual rate of 11.3% over the same period;
Capex Plan will aid higher volumes for JBML
The company has 4 manufacturing plants, all located in Maruti's vendor parks at Gurgaon and Manesar. JBML will
incur capex for setting up a green field plant in Gujarat, in conjunction with Maruti's proposed Gujarat plant. Even
Maruti’s capex plan of Rs.4,000 crore for the current fiscal that would go into developing new models will aid
higher volumes for JBML;
Outlook & Valuations
Maruti’s volumes between FY2015-FY2017 are expected to grow on back of decent launch pipeline,
expanding audience base (focus on UVs, Mid-size sedan & LCVs) & its ability to launch technologically
advanced product at affordable price points. In the long term, Maruti aims to increase the model count to 25
from the current 14 to bump up its annual sales to 3 million per annum;
Robust growth outlook for Maruti Suzuki ensures similar growth story for JBML as its fortune is entirely
dependent on Maruti. JBML's revenue growth will be led by higher volume growth for Maruti whereas
profitability and return ratios are likely to bump up on the back of higher utilization. At the current market price of
Rs.142 the stock trades at an attractive PE of 7.0x its FY2016E EPS of Rs.20.3 and at 6.1x its FY2017E EPS of
Rs.23.3. Hence, we initiate a BUY on the stock with a target price of Rs.230/ with a time horizon of about 2
years as we believe that the benefits from the increase in its capacity and thereby expansion in its PE
multiple would take anywhere from 1 to 2 years.
Disclosure: I, G.Chokkalingam, personally do not hold the shares of JAY BHARAT MARUTI LTD. directly or indirectly
through friends, relatives or any proxies.
Equinomics Research & Advisory Private Ltd | For private circulation only
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Stock Disclosure: Whether Stock Held By:
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Equinomics Research & Advisory Private Ltd
Investment Adviser
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G. Chokkalingam - Founder & Managing Director
Head Office – Mumbai
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